- The Washington Times - Thursday, August 6, 2009

Administration officials have been touting the good news that gross domestic product fell at an annual rate of “only” 1 percent in the second quarter. We are glad GDP didn’t fall by more, but the outlook is still not good. Government spending launders GDP numbers to make the economy look better off than it really is.

In the second quarter, the private sector shrank at the alarming rate of 3 percent. The only reason total GDP did not fall by more than 1 percent is that real federal expenditures and gross investment soared by 11 percent in the second quarter. Real state and local government consumption expenditures and gross investment increased by 2.4 percent.

This matters because government projects always add to GDP by how much they cost. If the government dug a ditch and filled it in, the expense for the digging and the filling would both count toward GDP. Whether a project is worth the cost — or even needed at all — is not considered.


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For instance, $11 million in the stimulus package was used to build a bridge connecting two adjacent parts of Microsoft’s headquarters in Redmond, Wash. If Microsoft had figured the bridge was worth the investment, the company would have tapped its own vast resources to build it without stimulus money. Maybe the $11 million bridge is only worth $6 million to Microsoft, but it is certainly worth less than $11 million. Regardless, the expenditure is counted as $11 million as far as GDP is concerned.

GDP figures alone are not always a useful metric in determining economic health. When the government spends twice as much for a two-pound package of sliced ham or a pound of mozzarella cheese as it costs in a grocery store, most Americans view it as wasteful spending. But that waste adds twice as much to GDP.



The hastily passed stimulus bill contains a large amount of waste. Such a massive federal spending program isn’t a healthy way to help the economy grow — no matter what GDP seems to show.

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